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Old 12-04-2013, 05:47 PM
 
581 posts, read 1,303,164 times
Reputation: 448

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A single friend looking at houses for $550,000 with $4k taxes.
Planning on putting $150k down and taking a mortgage for $400k.

This person is maxed out in their career and earns $100k.
It will not go up in the future.
Can 100k income really get approved for a $400k mortgage?
Will this really crap this person's lifestyle?

Would they have to do some sort of 5/1 ARM?
If so, do you just keep refi'ing every 5 years to keep it sustainable?

 
Old 12-04-2013, 06:34 PM
 
7,296 posts, read 11,861,266 times
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Yes they can afford it but there are better ways to invest their savings than buying a house that costs 5x their pretax income. Might be better to rent and invest the remainder in index funds. I don't think there are a lot of houses that appreciate by over 5% a year over the long term.
 
Old 12-04-2013, 07:16 PM
 
14,611 posts, read 17,541,713 times
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Quote:
Originally Posted by ShouldHaveLeft914 View Post
Can 100k income really get approved for a $400k mortgage?
Will this really crap this person's lifestyle?
The rules for mortgages changed dramatically in the last 15 years. Anyone who puts 20% down now on a house can get approved by the bank for what used to be considered "usury". The bank figures that they can always get it back on a foreclosure.

The answer to question #2 is probably.
 
Old 12-04-2013, 07:19 PM
 
Location: Texas
44,254 posts, read 64,342,342 times
Reputation: 73931
They could probably technically afford it but it would be a stupid move.
 
Old 12-04-2013, 08:50 PM
 
581 posts, read 1,303,164 times
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$400k mortgaged at 4.25% is about $2500/mo. including $4k taxes and $2000/yr insurance.
Take home salary for $100k would be about $6000/mo.

And $2500 is comparable to renting a 2B apt.

Actually, I guess it's quite doable.
Maybe even smarter than renting.
I guess I just needed to run the numbers.

Last edited by ShouldHaveLeft914; 12-04-2013 at 09:06 PM..
 
Old 12-05-2013, 07:31 AM
 
7,296 posts, read 11,861,266 times
Reputation: 3266
Actually in the first 10 or so years, most of that monthly house payments will be going to interest expense, taxes and insurance. Then you need to account for other costs such as updating and what not. I'm amazed that there is such a home with only $4K/year in taxes. Most of the time your expenses will be exceeding what goes to pay down the mortgage. So if they can find a $3K-$4K/month rental house in a good SD, then they should be at parity with buying on mortgage especially if they have kids to send to school.
 
Old 12-05-2013, 12:11 PM
 
Location: Westchester, NY
192 posts, read 375,666 times
Reputation: 226
Quote:
Originally Posted by ShouldHaveLeft914 View Post
A single friend looking at houses for $550,000 with $4k taxes.
Planning on putting $150k down and taking a mortgage for $400k.

This person is maxed out in their career and earns $100k.
It will not go up in the future.
Can 100k income really get approved for a $400k mortgage?
Will this really crap this person's lifestyle?

Would they have to do some sort of 5/1 ARM?
If so, do you just keep refi'ing every 5 years to keep it sustainable?
The $4k in taxes for $550k home is most likely not going to happen. I'm in the market for a house and currently actively looking. I have not run into a house with $4k in taxes yet. I don't think they are out there in Westchester. If they are please, please tell me where they are so I can go look there.

On the average I'm finding $10k+ for a $450k home.
 
Old 12-05-2013, 12:35 PM
 
7,296 posts, read 11,861,266 times
Reputation: 3266
/\/\

An dif that house is in NYC where RE taxes are lower then it's likely they'll need to pay city income taxes over and above (plus additional $$ for private services).
 
Old 12-05-2013, 05:46 PM
 
581 posts, read 1,303,164 times
Reputation: 448
The house is in CT.
 
Old 12-05-2013, 09:08 PM
 
Location: Virginia
475 posts, read 852,804 times
Reputation: 431
I don't think I would over extend myself like that. One mishap and it's all over. Here in the great old south I was able to save and buy a house cash. Down here you can buy a modest home for 65-100k. I would say that if his/her income cannot go any further up but home prices can, I don't think it is a wise investment.
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